Oakland Faces Lawsuit Over Obstruction of Coal Shipping

A developer fighting to export coal from a planned marine shipping terminal in Oakland sued the city in state court Tuesday, accusing local officials of obstructing the project.

It’s the second lawsuit against the city over the Oakland Bulk & Oversized Terminal (OBOT). In May, a federal judge overturned a ban prohibiting the storage and handling of coal at bulk-goods facilities in Oakland, suggesting it was enacted to kill the terminal project.

Now, OBOT’s developers claim in a complaint filed in Alameda County Superior Court that the city has renewed efforts to obstruct the project, this time by falsely asserting OBOT defaulted on its lease at the former Oakland Army Base and giving it 72 hours to vacate the property.

“In one egregious omission or act after another, the city has failed to perform its material obligations under the lease and [development agreement], and has aggressively taken steps to prevent OBOT’s performance under the lease and receipt of its benefit of the bargain thereunder,” the developers’ lawyer, Barry Lee of Manatt, Phelps & Phillips, wrote in the 50-page complaint.

OBOT’s developers – including Phil Tagami, a friend of Gov. Jerry Brown – want to haul coal by train from nearly 1,000 miles away in Utah and ship it to Asia through the $250 million facility. The terminal is being built next to the Port of Oakland and would be capable of exporting up to 10 million tons of coal annually, making it the largest coal export terminal on the West Coast.
But in June 2016, the Oakland City Council passed two measures prohibiting the storage and handling of coal and petroleum coke at any bulk-materials facility in the city after multiple studies found coal dust blowing off trains can cause asthma or cancer, and that emissions from the terminal would worsen air quality in West Oakland, a community primarily composed of low-income people of color that already suffers from some of the worst air quality in California due to its proximity to major freeways and the port.

The new regulations brought the project to a halt. Tagami sued in federal court to reverse the ban the following December, claiming it violated a 2013 development agreement between OBOT and the city.

Tagami, whose Oakland-based real estate firm California Capital and Investment Group owns OBOT, argued the city knew before signing the development agreement the terminal might handle coal and didn’t object, but caved to political pressure from environmental groups after four Utah counties announced plans to invest $53 million in the terminal to export their coal.

They said the report – on which the City Council relied to pass the ban – was based on faulty math and used the wrong input for estimating the amount of emissions the terminal would create.

This led to the conclusion that the terminal would create 67 pounds of particulate matter 2.5 – a type of air pollution that penetrates deep into the body – each day, 17 times more than it actually would, Tagami’s lawyers said.

An ESA project manager denied Oakland influenced the report. But she acknowledged the 67-pounds figure was an error.

U.S. District Judge Vince Chhabria struck down the coal ban, finding the city breached the development agreement by adopting the ban without “substantial evidence” that transporting coal through the terminal would present a “substantial danger” to people in Oakland.

“As a practical matter, this renders the coal ordinance a nullity, because the only reason the city adopted it was to restrict OBOT’s operations, and OBOT is the only facility in Oakland to which it could conceivably apply,” Chhabria ruled.

On Tuesday, OBOT’s developers said the city has also tried obstructing the project over the last four years by implementing “inappropriate and unwarranted additional layers of legal review,” refusing to address prerequisites for permit submittals, interfering with OBOT’s funding and permitting efforts with outside regulatory agencies, and refusing to turn over possession of the army-base property.

The last straw came Monday, when OBOT was served with a three-day notice to cure the alleged lease default or vacate the property, the developers say.

Monday’s notice, they say, was the culmination of a scheme initiated in August, when the city sent OBOT a letter claiming OBOT had defaulted on its lease by failing to start construction by an initial milestone date set forth in the lease.

They denied the allegation, arguing the city prevented them from fulfilling their lease obligations. Nonetheless, in October, the city said the lease had terminated because OBOT failed to cure the alleged default, according to the complaint.

“The city’s latest tactic-falsely asserting that its lease with OBOT has automatically terminated as the result of a claimed default that did not occur-speaks volumes about the city’s misguided attempts to eliminate this project in violation of its long-standing contractual commitments,” Lee writes in the complaint.

OBOT’s developers say they’ve invested more than $30 million in the project and will suffer more than $100 million in damages if they can’t complete it. They want court orders forbidding Oakland from interfering with the project and requiring it to fulfill its obligations under the contract.

Lee did not immediately return an email request for comment late Tuesday. The city attorney’s office also had no immediate comment.